def14a
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant o
Filed by a Party other than the Registrant o
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Linn Energy, LLC
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify the previous
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Persons who are to respond to the collection of information contained in this form are not
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LINN
ENERGY, LLC
600 Travis, Suite 7000
Houston, Texas 77002
NOTICE OF SPECIAL MEETING OF
UNITHOLDERS
To Be Held on Thursday,
January 18, 2007
Dear Unitholders:
You are cordially invited to attend a Special Meeting of
Unitholders (the Special Meeting) of Linn Energy,
LLC, a Delaware limited liability company (Linn
Energy), which will be held on Thursday, January 18,
2007, at 10:00 a.m., Central Standard Time, at
600 Travis, Suite 7000, Houston, Texas 77002. The
Special Meeting will be held for the following purposes:
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1.
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To vote upon (a) a change in the terms of our Class B
Units to provide that each Class B Unit will automatically
convert into one of our Units and (b) the issuance of
9,185,965 Units upon such conversion (the Class B
Conversion and Issuance Proposal).
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2.
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A proposal to approve an amendment to the Linn Energy, LLC
Long-Term Incentive Plan (the LTIP) to provide that
not more than 1,500,000 of the total number of Units authorized
to be issued under the LTIP may be issued as Restricted Units
(the LTIP Amendment Proposal).
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Our board of directors unanimously recommends that the
unitholders approve the Class B Conversion and Issuance
Proposal and the LTIP Amendment Proposal.
We are submitting the Class B Conversion Proposal and
Issuance Proposal to you as a result of our sale of 9,185,965
Class B Units at $20.55 per Class B Unit to
certain institutional investors. The sales price of the
Class B Units was determined through negotiations with the
institutional investors. We used the proceeds from the sale of
the Class B Units to repay indebtedness outstanding under
our bridge facility and our revolving credit facility, which
were used to partially finance the acquisitions of certain
affiliated entities of Blacksand Energy, LLC and certain
Mid-Continent assets of Kaiser-Francis Oil Company. Concurrently
with their acquisition of Class B Units on October 24,
2006, the institutional investors purchased 5,534,687 Units, the
proceeds of which were also used to repay indebtedness.
We decided to issue Class B Units to expedite the repayment
of our one-year bridge facility. Alternative sources of equity
could have potentially been obtained, but at a risk of delaying
the repayment of indebtedness. For example, to have issued all
the requisite equity capital in the form of Units would have
required a unitholder vote prior to such issuance under the
Nasdaq Marketplace Rules and thereby delayed the repayment of
indebtedness. The institutional investors agreed to accept
Class B Units in lieu of additional Units, provided we ask
unitholders to approve the conversion of the Class B Units
into Units no later than 90 days after acquisition of the
Class B Units. We are now asking you for this approval.
If our unitholders approve the proposal, then the Class B
Units will convert automatically into an equal number of Units.
If our unitholders do not approve the proposal, then the
Class B Units will continue to receive from us 115% of the
per Unit distributions paid on the Units, reducing the amount of
cash available for distribution on the Units. The failure to
approve the proposal would have no effect on our prior repayment
of indebtedness, our issuance of 5,534,687 Units to the
institutional investors, the listing of these Units on The
NASDAQ Global Market or our issuance of 9,185,965 Class B
Units.
In addition, we are also asking you to approve the LTIP
Amendment Proposal, which was previously approved and adopted by
our Board of Directors, subject to unitholder approval. We
believe that this amendment is necessary in order to continue to
attract and retain high caliber individuals to serve as
officers, directors, employees and consultants of our company.
We urge you to read the accompanying Proxy Statement carefully
as it sets forth important information about the Class B
Conversion and Issuance Proposal, the LTIP Amendment Proposal
and the Special Meeting. Adoption of the Class B Conversion
and Issuance Proposal and the LTIP Amendment Proposal requires
the affirmative vote of a majority of the votes entitled to be
cast on such proposal at the Special Meeting by holders of
Units, provided that the total votes cast represent over 50% in
interest of all outstanding Units.
Only holders of record of Units at the close of business on
December 12, 2006 are entitled to receive notice of and to
vote at the Special Meeting or any adjournments or postponement
thereof. Units purchased by the institutional investors
simultaneously with the Class B Units are not entitled to
vote on the Class B Conversion and Issuance Proposal
according to the rules of The NASDAQ Global Market. A list of
our holders will be available for examination at the Special
Meeting and at Linn Energys office at least ten days prior
to the Special Meeting.
By Order of the Board of Directors,
Roland P. Keddie
Secretary
Houston, Texas
December 18, 2006
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN
THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE AS PROMPTLY AS
POSSIBLE. IF YOU ATTEND THE MEETING AND SO DESIRE, YOU MAY
WITHDRAW YOUR PROXY AND VOTE IN PERSON.
TABLE OF CONTENTS
LINN
ENERGY, LLC
600 Travis, Suite 7000
Houston, Texas 77002
PROXY
STATEMENT
Special Meeting of Unitholders
To Be Held on Thursday, January 18, 2007
This Proxy Statement, which was first mailed to our unitholders
on December 18, 2006, is being furnished to you in
connection with the solicitation of proxies by and on behalf of
our board of directors for use at a Special Meeting of
Unitholders (the Special Meeting) or at any
adjournments or postponements thereof. The Special Meeting will
be held on Thursday, January 18, 2007, at 10:00 a.m.,
Central Standard Time, at 600 Travis, Suite 7000,
Houston, Texas 77002. Only holders of record of Units at the
close of business on December 12, 2006 (the Record
Date) are entitled to notice of, and are entitled to vote
at, the Special Meeting and any adjournments or postponement
thereof, unless such adjournment or postponement is for more
than 45 days, in which event we will set a new record date.
Units purchased simultaneously with our Class B Units are
not entitled to vote on the Class B Conversion and Issuance
Proposal (as defined herein) according to the rules of The
NASDAQ Global Market. Unless the context requires otherwise, the
terms our, we, us and
similar terms refer to Linn Energy, LLC, together with its
consolidated subsidiaries.
Proposals
At the Special Meeting of Unitholders, we are asking our
Unitholders to consider and act upon a proposal to:
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(a) change the terms of our Class B Units to provide
that each Class B Unit will convert automatically into one
of our Units and (b) issue 9,185,965 Units upon such
conversion (the Class B Conversion and Issuance
Proposal).
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approve an amendment to the Linn Energy, LLC Long-Term Incentive
Plan (the LTIP) to provide that not more than
1,500,000 of the total number of Units authorized to be issued
under the LTIP may be issued as Restricted Units (the LTIP
Amendment Proposal).
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Quorum
Required
The presence, in person or by proxy, of the holders as of the
Record Date of a majority of our outstanding Units is necessary
to constitute a quorum for purposes of voting on the
Class B Conversion and Issuance Proposal at the Special
Meeting. Withheld votes will count as present for purposes of
establishing a quorum on the proposals.
How to
Vote
You may vote in person at the Special Meeting or by proxy. Even
if you plan to attend the Special Meeting, we encourage you to
complete, sign and return your proxy card in advance of the
Special Meeting. If you plan to attend the Special Meeting and
wish to vote in person, then we will give you a ballot at the
meeting. However, if your Units are held in the name of a
broker, then you must obtain from the brokerage firm an account
statement, letter or other evidence satisfactory to us of your
beneficial ownership of the Units. Please mail your completed,
signed and dated proxy card in the enclosed postage-paid return
envelope as soon as possible so that your Units may be
represented at the Special Meeting.
Revoking
Your Proxy
You may revoke your proxy before it is voted at the Special
Meeting as follows: (i) by delivering, before or at the
Special Meeting, a new proxy with a later date; (ii) by
delivering, on or before the business day prior to the Special
Meeting, a notice of revocation to our Secretary at the address
set forth in the notice of the Special Meeting;
(iii) by attending the Special Meeting in person and
voting, although your attendance at the Special Meeting, without
actually voting, will not by itself revoke a previously granted
proxy; or (iv) if you have instructed a broker to vote your
Units, then you must follow the directions received from your
broker to change those instructions.
Outstanding
Units Held on Record Date
As of the Record Date, there were 33,417,187 Units outstanding.
Of the 33,417,187 Units outstanding as of the Record Date,
5,534,687 Units are not entitled to vote on the Class B
Conversion and Issuance Proposal.
Units
Owned by Our Affiliates as of the Record Date
As of the Record Date: (i) Quantum Energy
Partners II, LP; and (ii) our directors and executive
officers collectively held 14,706,343 Units. Please read
Security Ownership of Certain Beneficial Owners and
Management.
In conjunction with the sale of Class B Units and Units to
the institutional investors, Quantum Energy Partners II,
LP, Michael C. Linn, Kolja Rockov, Lisa D. Anderson and Roland
P. Keddie entered into a voting agreement (the Voting
Agreement), pursuant to which they agreed to vote all of
the Units beneficially owned by them in favor of the conversion
of the Class B Units into Units at any meeting of the
unitholders convened to consider and vote upon the conversion of
Class B Units to Units. Quantum Energy Partners II,
LP, Michael C. Linn, Kolja Rockov, Lisa D. Anderson and Roland
P. Keddie collectively held 14,676,093 as of the Record Date,
representing approximately 52.6% of the outstanding Units
(excluding the 5,534,687 Units purchased by institutional
investors in the October 24, 2006 private placement) as of
the Record Date.
Additionally, pursuant to the agreement among us and the
institutional investors regarding the purchase of the
Class B Units (the Class B and Unit Purchase
Agreement), each of the institutional investors agreed to
vote all of its Units, with the exception of the Units purchased
in the private placement, which are not entitled to vote
according to the rules of The NASDAQ Global Market, in favor of
the conversion of the Class B Units into Units.
For additional copies of this Proxy Statement or proxy cards
or if you have any questions about the Special Meeting, please
contact Georgeson Inc., our proxy solicitor, at 17 State Street,
New York, New York 10004. Banks and brokerage firms, please call
212-440-9800.
Unitholders, please call Toll-Free
1-866-785-7361.
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QUESTIONS
AND ANSWERS
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WHAT IS THE PURPOSE OF THE SPECIAL MEETING? |
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The purpose of the Special Meeting is for our unitholders to
consider and act upon proposals to approve: |
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(a) a change in the terms of our
Class B Units to provide that each Class B Unit will
automatically convert into one of our Units and (b) the
issuance of additional Units upon such conversion. Upon approval
of this proposal, each of the 9,185,165 Class B Units will
convert into one Unit totaling 9,185,165 Units. We refer to this
proposal in this proxy statement as the Class B Conversion
and Issuance Proposal.
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We are submitting the Class B Conversion
Proposal and Issuance Proposal to you as a result of our sale of
9,185,965 Class B Units at $20.55 per Unit to certain
institutional investors. The sales price of the Class B
Units was determined through negotiations with the institutional
investors. We used the proceeds from the sale of the
Class B Units to repay borrowings under our bridge facility
and our revolving credit facility, which were used to partially
finance the acquisitions of certain affiliated entities of
Blacksand Energy, LLC and certain Mid-Continent assets of
Kaiser-Francis Oil Company. Concurrently with their acquisition
of Class B Units on October 24, 2006, the
institutional investors purchased 5,534,687 Units, the proceeds
of which were also used to repay indebtedness.
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We decided to issue Class B Units to expedite
the repayment of our one-year bridge facility. Alternative
sources of equity could have potentially been obtained, but at a
risk of delaying the repayment of indebtedness. For example, to
have issued all the requisite equity capital in the form of
Units would have required a unitholder vote prior to such
issuance under the Nasdaq Marketplace Rules and thereby delayed
the repayment of indebtedness. The institutional investors
agreed to accept Class B Units in lieu of additional Units,
provided we ask unitholders to approve the conversion of the
Class B Units into Units no later than 90 days after
acquisition of the Class B Units. We are now asking you for
this approval.
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an amendment to the LTIP to provide that not
more than 1,500,000 of the total number of Units authorized to
be issued under the LTIP may be issued as Restricted Units.
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Class B
Conversion and Issuance Proposal
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WHAT HAPPENS IF THE REQUIRED APPROVAL FOR THE CLASS B
CONVERSION AND ISSUANCE PROPOSAL IS OBTAINED? |
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Each outstanding Class B Unit will be converted
automatically into one Unit upon approval and the new Units will
be issued and listed on The NASDAQ Global Market. For purposes
of future distributions, former Class B unitholders will
become unitholders and will no longer be entitled to 115% of per
Unit distributions. The voting power of each Unit will be
decreased due to the conversion of nonvoting Class B Units
to voting Units. |
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WHAT HAPPENS IF THE REQUIRED APPROVAL FOR THE CLASS B
CONVERSION AND ISSUANCE PROPOSAL IS NOT OBTAINED? |
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If our unitholders do not approve the conversion of Class B
Units to Units, each Class B Unit will continue to receive
115% of the amount of distributions paid on each Unit. This
distribution reduces the amount of cash available for
distribution to unitholders. Upon written notice from the
parties holding a majority of the Class B Units, a second
vote will occur to consider conversion of Class B Units to
Units. If approval is not obtained at the second vote, the
proposal to convert Class B Units to Units will be voted
upon at no more than two subsequent annual meetings of our
unitholders. |
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WHAT VOTE IS REQUIRED TO APPROVE THE CLASS B CONVERSION
AND ISSUANCE PROPOSAL? |
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Adoption of the Class B Conversion and Issuance Proposal
requires the affirmative vote of a majority of the votes cast at
the Special Meeting by holders of Units, provided that the total
votes cast represent over 50% in interest of all Units entitled
to vote at the Special Meeting with respect to the Class B
Conversion and Issuance Proposal. Units purchased by the
institutional investors simultaneously with the Class B
Units are not entitled to vote on the Class B Conversion
and Issuance Proposal according to the rules of The NASDAQ
Global Market. A properly executed proxy submitted without
instructions on how to vote will be voted FOR this |
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proposal, unless your proxy is properly revoked. A properly
executed proxy submitted and marked ABSTAIN with
respect to any matter will not be voted, although it will be
counted for purposes of determining the existence of a quorum. |
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In conjunction with the sale of Class B Units and Units to
the institutional investors, Quantum Energy Partners II,
LP, Michael C. Linn, Kolja Rockov, Lisa D. Anderson and Roland
P. Keddie entered into a voting agreement (the Unitholder
Voting Agreement), pursuant to which they agreed to vote
all of the Units beneficially owned by them in favor of the
conversion of the Class B Units into Units at any meeting
of the unitholders convened to consider and vote upon the
conversion of Class B Units to Units. Quantum Energy
Partners II, LP, Michael C. Linn, Kolja Rockov, Lisa D.
Anderson and Roland P. Keddie collectively held 14,676,093 Units
as of the Record Date, representing approximately 52.6% of the
outstanding Units (excluding the 5,534,687 Units purchased by
institutional investors in the October 24, 2006 private
placement) as of the Record Date. |
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Additionally, pursuant to the Class B and Unit Purchase
Agreement, each of the institutional investors agreed to vote
all of its Units, with the exception of the purchased Units
which are not entitled to vote according to the rules of The
NASDAQ Global Market, in favor of the conversion of the
Class B Units into Units. |
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WHAT ARE THE MATERIAL DIFFERENCES BETWEEN THE UNITS AND
CLASS B UNITS? |
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There are three material differences between the Units and the
Class B Units. |
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First, the Units receive distributions of available cash from
operating surplus in an amount equal to the quarterly
distribution,which amount was $0.43 per Unit with respect
to the third quarter of 2006. Each Class B Unit has the
right to share in distributions on a pro rata basis with the
Units, with the amount of any distributions on such Class B
Unit equaling 115% of the quarterly cash distribution amount
payable on each Unit.
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Second, the Class B Units are non-voting. Unitholders
holding Units have the right to vote their Units with respect to
the election of our board of directors, certain amendments of
our limited liability company agreement, the merger of our
company or the sale of all or substantially all of our assets,
and the dissolution of our company.
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Third, the Units have a liquidation preference over the
Class B Units, which means if we liquidate, then we will
allocate gain and loss to entitle the holders of Units a
preference over the holders of Class B Units to the extent
required to permit the unitholders to receive their unrecovered
initial Unit price, plus the initial quarterly distribution for
the quarter during which liquidation occurs, plus any arrearages
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LTIP
Amendment Proposal
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WHAT HAPPENS IF THE LTIP AMENDMENT PROPOSAL IS
APPROVED? |
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We will use the additional Restricted Units deliverable under
the LTIP to provide incentive to our officers, directors,
employees and consultants for superior performance and to
enhance our ability to attract and retain the services of
individuals essential for our growth and profitability. |
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WHAT HAPPENS IF THE LTIP AMENDMENT PROPOSAL IS NOT
APPROVED? |
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As of the date hereof, we have made Restricted Unit awards under
the LTIP of 298,909 Restricted Units in connection with hiring
certain officers of Linn Energy, which does not include another
200,000 Restricted Units that will be awarded in December 2006
under the LTIP in connection with the appointment of Mark E.
Ellis as our Executive Vice President and Chief Operating
Officer. As a result, an aggregate of 1,091 Restricted Units are
currently available for delivery with respect to awards under
the LTIP out of the initial 500,000 Restricted Units authorized
at the time of our initial public offering. Additionally,
subject to your approval of the LTIP Amendment Proposal, our
Compensation Committee has approved an aggregate of 400,500
Restricted Unit awards to certain of our executive officers and
other employees. If the LTIP Amendment Proposal is not approved,
then: (i) we will be unable to award Restricted Units under
the LTIP beyond the current limitation because the Nasdaq
Marketplace Rules require unitholder approval of material
amendments to our LTIP; and (ii) the aggregate 400,500
Restricted Units approved by our Compensation Committee will |
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not be awarded to certain of our executive officers and other
employees. Once current availability of Restricted Units under
the LTIP is exhausted, our Board of Directors would be required
to consider making other awards under the LTIP to help attract,
retain and motivate new employees and directors. |
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WHAT VOTE IS REQUIRED TO APPROVE THE LTIP AMENDMENT
PROPOSAL? |
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Adoption of the LTIP Amendment Proposal requires the affirmative
vote of a majority of the votes cast at the Special Meeting by
holders of Units, provided that the total votes cast represent
over 50% in interest of all outstanding Units. A properly
executed proxy submitted without instructions on how to vote
will be voted FOR this proposal, unless your proxy is properly
revoked. A properly executed proxy submitted and marked
ABSTAIN with respect to any matter will not be
voted, although it will be counted for purposes of determining
the existence of a quorum. |
The
Special Meeting; Voting
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WHO IS SOLICITING MY PROXY? |
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We are sending you this Proxy Statement in connection with our
solicitation of proxies for use at our Special Meeting of
unitholders. Certain directors, officers and employees of Linn
Energy and Georgeson Inc. may also solicit proxies on our behalf
by mail, phone, fax or in person. You may obtain additional
information regarding this Special Meeting from Georgeson Inc.
as follows: 17 State Street, New York, New York 10004. Banks and
brokerage firms, please call
212-440-9800.
Unitholders, please call Toll-Free 1-866-785-7361. |
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WHEN AND WHERE IS THE SPECIAL MEETING? |
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The Special Meeting will be held on Thursday, January 18,
2007, at 10:00 a.m., Central Standard Time, at
600 Travis, Suite 7000, Houston, Texas 77002. |
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WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING? |
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Only holders of record of Units at the close of business on the
Record Date are entitled to notice of, and to vote at, the
Special Meeting. Units purchased by the institutional investors
simultaneously with the Class B Units are not entitled to
vote on the Class B Conversion and Issuance Proposal
according to the rules of The NASDAQ Global Market. |
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HOW DO I VOTE? |
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After you read and carefully consider the information contained
in this Proxy Statement, please mail your completed, signed and
dated proxy card in the enclosed postage-paid return envelope as
soon as possible so that your Units may be represented at the
Special Meeting. You may also vote by attending the Special
Meeting and voting your Units in person. Even if you plan to
attend the Special Meeting, your plans may change, so it is a
good idea to complete, sign and return your proxy card or vote
by otherwise following the instructions on the proxy card in
advance of the Special Meeting. |
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MAY I CHANGE MY VOTE AFTER RETURNING A PROXY CARD? |
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Yes. To change your vote after you have submitted your proxy
card, send in a later dated, signed proxy card to us or attend
the Special Meeting and vote in person. You may also revoke your
proxy by sending in a notice of revocation to our Secretary at
the address set forth in the notice of the Special Meeting.
Please note that attendance at the Special Meeting will not by
itself revoke a previously granted proxy. |
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HOW DO I VOTE MY UNITS IF THEY ARE HELD IN STREET
NAME? |
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Your broker will not vote your Units unless you provide
instructions on how to vote. Please contact your broker if you
have not received a request for voting instructions. If you have
instructed your broker to vote your Units and wish to change
those instructions before the vote at the Special Meeting, then
you must follow the directions received from your broker. |
5
PROPOSAL ONE
CLASS B CONVERSION AND ISSUANCE PROPOSAL
Background
We are submitting the Class B Conversion Proposal and
Issuance Proposal to you as a result of our sale of 9,185,965
Class B Units at $20.55 per Unit to certain
institutional investors. The sales price of the Class B
Units was determined through negotiations with the institutional
investors. We used the proceeds from the sale of the
Class B Units to repay indebtedness outstanding under our
bridge facility and our revolving credit facility, which were
used to partially finance the acquisitions of certain affiliated
entities of Blacksand Energy, LLC and certain Mid-Continent
assets of Kaiser-Francis Oil Company. Concurrently with their
acquisition of Class B Units on October 24, 2006, the
institutional investors purchased 5,534,687 Units, the proceeds
of which were also used to repay indebtedness.
We decided to issue Class B Units to expedite the repayment
our one-year bridge facility. Alternative sources of equity
could have potentially been obtained, but at a risk of delaying
the repayment of indebtedness. For example, to have issued all
the requisite equity capital in the form of Units would have
required a unitholder vote prior to such issuance under the
Nasdaq Marketplace Rules and thereby delayed the repayment of
indebtedness. The institutional investors agreed to accept
Class B Units in lieu of additional Units, provided we ask
unitholders to approve the conversion of the Class B Units
into Units no later than 90 days after acquisition of the
Class B Units. We are now asking you for this approval.
The
Proposal
At the Special Meeting, our unitholders will consider and act
upon a proposal to approve: (a) a change in the terms of
our 9,185,965 Class B Units to provide that each
Class B Unit will convert automatically into one Unit
effective upon such approval and (b) our issuance of
9,185,965 Units upon conversion of the Class B Units.
Effects
of Approval
If our unitholders approve the conversion of Class B Units
at the Special Meeting, each outstanding Class B Unit will
convert automatically into one Unit upon approval and will be
listed on The NASDAQ Global Market. For purposes of future
distributions, former Class B unitholders will become
unitholders and will no longer be entitled to 115% of per Unit
distributions. The voting power of each Unit will be decreased
due to the conversion of nonvoting Class B Units to voting
Units.
Effects
of Failure to Approve
Each Class B Unit currently is entitled to receive 115% of
the amount of distributions paid on each Unit. If our
unitholders do not approve the conversion of Class B Units
to Units, each Class B Unit will continue to receive 115%
of the amount of distributions paid on each Unit. This
distribution reduces the amount of cash available for
unitholders. Upon written notice from the parties holding a
majority of the Class B Units, a second vote will occur to
consider conversion of Class B Units to Units. If approval
is not obtained pursuant to the second vote, the proposal to
convert Class B Units to Units will be voted upon at no
more than two subsequent annual meetings of our unitholders.
The 115% distribution terminates if at any time there are no
longer any Class B Units outstanding, which would occur
upon the automatic conversion of the Class B Units into
Units either (1) upon receipt of approval of the
Class B Conversion and Issuance Proposal, whether at this
Special Meeting or a subsequent meeting, or (2) if at any
time unitholder approval is no longer required under the Nasdaq
Marketplace Rules as a condition to the listing on the Nasdaq of
the Units that would be issued upon such conversion.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
UNITHOLDERS VOTE FOR APPROVAL OF THE
CLASS B CONVERSION AND ISSUANCE PROPOSAL.
6
Reasons
for Board of Directors Recommendation
Our board of directors believes that the Class B Conversion
and Issuance Proposal is in the best interests of our company
and our unitholders and should be approved for the following
reasons:
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If our unitholders fail to approve the Class B Conversion
and Issuance Proposal, each class B Unit will continue to
be entitled to receive 115% of the amount of distributions paid
on each Unit. This would reduce the amount of cash available to
be distributed to the unitholders holding Units.
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Issuance of all the requisite equity capital in the form of
Units would have required a unitholder vote prior to such
issuance under the Nasdaq Marketplace Rules and thereby delayed
the repayment of indebtedness. Any delay in the repayment of
indebtedness would have caused us to continue to incur interest
expense at a rate higher than the cost of issuing the
Class B Units. The institutional investors agreed to accept
Class B Units in lieu of additional Units, provided we ask
unitholders to approve the conversion of the Class B Units
into Units no later than 90 days after acquisition of the
Class B Units. We are now asking you for this approval.
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If our unitholders fail to approve the Class B Conversion
and Issuance Proposal at this Special Meeting, we have agreed to
solicit our unitholders again at a subsequent Special Meeting.
Any subsequent solicitation would result in additional costs and
expenses to us and would decrease the amount of cash available
to be distributed to our unitholders.
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7
PROPOSAL TWO
APPROVAL
OF AMENDMENT TO THE LINN ENERGY, LLC
LONG-TERM
INCENTIVE PLAN
Pursuant to a recommendation of the Compensation Committee made
in November 2006, the Board of Directors has approved an
amendment to our LTIP, subject to unitholder approval. The Board
of Directors believes that this amendment is necessary in order
to continue to attract and retain high caliber individuals to
serve as officers, directors, employees and consultants of our
company. If the amendment is approved, it will be effective as
of the date of the Special Meeting of unitholders. The proposed
amendment to the LTIP, if approved, will provide that not more
than 1,500,000 of the total number of Units authorized to be
issued under the LTIP may be issued as Restricted Units.
Adoption of the LTIP Amendment Proposal requires the affirmative
vote of a majority of the votes cast at the Special Meeting by
holders of Units, provided that the total votes cast represent
over 50% in interest of all our outstanding Units. A properly
executed proxy submitted without instructions on how to vote
will be voted FOR this proposal, unless your proxy is properly
revoked. A properly executed proxy submitted and marked
ABSTAIN with respect to any matter will not be
voted, although it will be counted for purposes of determining
the existence of a quorum.
For a more complete description of the LTIP Amendment, please
read Proposed Amendment to the LTIP below and a copy
of the First Amendment to the Linn Energy, LLC Long-Term
Incentive Plan included as Annex A to this Proxy
Statement (the LTIP Amendment). For a more complete
description of the LTIP generally, please read Summary
Description of the Linn Energy Long-Term Incentive Plan
below. A copy of the LTIP is included as Annex B to
this Proxy Statement. The statements made in this Proxy
Statement with respect to the LTIP Amendment Proposal should be
read in conjunction with, and are qualified in their entirety by
reference to, the full text of the LTIP and the LTIP Amendment,
which are incorporated by reference herein from
Annex A and Annex B.
Proposed
Amendment to the LTIP
As of the date hereof, we have made Restricted Unit awards under
the LTIP of 298,909 Restricted Units in connection with hiring
certain officers of Linn Energy, which does not include another
200,000 Restricted Units that will be awarded in December 2006
under the LTIP in connection with the appointment of Mark E.
Ellis as our Executive Vice President and Chief Operating
Officer. As a result, an aggregate of 1,091 Restricted Units are
currently available for delivery with respect to awards under
the LTIP out of the initial 500,000 Restricted Units authorized
at the time of our initial public offering. Based on our
expectations regarding near-term awards, our Board of Directors
does not believe that this amount is be sufficient.
Additionally, subject to your approval of the LTIP Amendment
Proposal, our Compensation Committee has approved an aggregate
of 400,500 Restricted Unit awards to certain of our executive
officers and other employees.
Effects
of Approval
We will use the additional Units deliverable under the LTIP to
provide incentive to our officers, directors, employees and
consultants for superior performance and to enhance our ability
to attract and retain the services of individuals essential for
our growth and profitability. These amendments will be effective
immediately upon the approval of our unitholders. The LTIP will
continue to be administered under the direction of the
Compensation Committee of our Board of Directors.
Effects
of Failure to Approve
If the LTIP Amendment Proposal is not approved, then we will be
unable to award Restricted Units under the LTIP beyond the
current limitation because the NASDAQ Marketplace Rules require
unitholder approval of material amendments to our LTIP. Once
current availability of Restricted Units under the LTIP is
exhausted, our Board of Directors would be required to consider
making other awards under the LTIP to help attract, retain and
motivate new employees and directors.
8
Summary
Description of the Linn Energy, LLC Long-Term Incentive
Plan
The LTIP consists of four components: Restricted Units, Phantom
Units, Unit Options and unit appreciation rights. The LTIP
currently limits the number of units that may be delivered
pursuant to awards to 3,900,000 Units, provided that no more
than 500,000 of such Units (as adjusted) may be issued as
Restricted Units. Units withheld to satisfy exercise prices or
tax withholding obligations are available for delivery pursuant
to other awards.
Unit Grants. A unit grant is a unit that vests
immediately upon issuance. In the future, the compensation
committee may make unit grants under the plan to employees and
members of our Board of Directors.
Unit Options. A unit option is a right to
purchase a unit at a specified price. In the future, the
compensation committee may make option grants under the plan to
employees and members of our Board containing such terms as the
committee shall determine. Unit options will have an exercise
price that will not be less than the fair market value of the
units on the date of grant. In general, unit options granted
will become exercisable over a period determined by the
compensation committee, although vesting may accelerate upon the
achievement of specified financial objectives. In addition, the
unit options will become exercisable upon a change in control of
our company, unless provided otherwise by the committee. If a
grantees employment, consulting relationship or membership
on the Board of Directors terminates for any reason, the
grantees unvested unit options will be automatically
forfeited unless, and to the extent, the option agreement or the
compensation committee provides otherwise.
Upon exercise of a unit option (or a unit appreciation right, as
defined below, settled in units), we will issue new units,
acquire units on the open market or directly from any person or
use any combination of the foregoing, in the compensation
committees discretion. If we issue new units upon exercise
of the unit options (or a unit appreciation right settled in
units), the total number of units outstanding will increase. The
availability of unit options and unit appreciation rights is
intended to furnish additional compensation to employees and
members of our Board of Directors and to align their economic
interests with those of unitholders.
Restricted Units. A restricted unit is a unit
that vests over a period of time and that during such time is
subject to forfeiture. In the future, the compensation committee
may make additional grants of restricted units under the plan to
employees, consultants and directors containing such terms as
the compensation committee shall determine. The compensation
committee will determine the period over which restricted units
(and distributions related to such units) will vest. The
committee may base its determination upon the achievement of
specified financial objectives. In addition, the restricted
units will vest upon a change of control of our company, as
defined in the plan, unless provided otherwise by the committee.
If a grantees employment, consulting relationship or
membership on the Board of Directors terminates for any reason,
the grantees restricted units will be automatically
forfeited unless, and to the extent, the compensation committee
or the terms of the award agreement provide otherwise. Units to
be delivered as restricted units may be units issued by us,
units acquired by us in the open market, units already owned by
us, units acquired by us from any other person or any
combination of the foregoing. If we issue new units upon the
grant of the restricted units, the total number of units
outstanding will increase.
We intend the restricted units under the plan to serve as a
means of incentive compensation for performance and not
primarily as an opportunity to participate in the equity
appreciation of our units. Therefore, plan participants will not
pay any consideration for the units they receive, and we will
receive no remuneration for the units.
Phantom Units. A phantom unit entitles the
grantee to receive a unit upon the vesting of the phantom unit
or, in the discretion of the compensation committee, cash
equivalent to the value of a unit. In the future, the
compensation committee may make grants of phantom units under
the plan to employees, consultants and directors containing such
terms as the compensation committee shall determine. The
compensation committee will determine the period over which
phantom units will vest. The committee may base its
determination upon the achievement of specified financial
objectives. In addition, the phantom units will vest upon a
change of control of our company, unless provided otherwise by
the committee.
If a grantees employment, consulting relationship or
membership on the Board of Directors terminates for any reason,
the grantees phantom units will be automatically forfeited
unless, and to the extent, the compensation committee or the
terms of the award agreement provide otherwise. Units to be
delivered upon the vesting of
9
phantom units may be units issued by us, units acquired by us in
the open market, units already owned by us, units acquired by us
from any other person or any combination of the foregoing. If we
issue new units upon vesting of the phantom units, the total
number of units outstanding will increase. The compensation
committee, in its discretion, may grant tandem distribution
equivalent rights with respect to phantom units that entitle the
holder to receive cash equal to any cash distributions made on
units while the phantom units are outstanding.
We intend the issuance of any units upon vesting of the phantom
units under the plan to serve as a means of incentive
compensation for performance and not primarily as an opportunity
to participate in the equity appreciation of our units.
Therefore, plan participants will not pay any consideration for
the units they receive, and we will receive no remuneration for
the units.
Unit Appreciation Rights. A unit appreciation
right is an award that, upon exercise, entitles the participant
to receive the excess of the fair market value of a unit on the
exercise date over the exercise price established for the unit
appreciation right. Such excess may be paid in units, cash or a
combination thereof, as determined by the compensation committee
in its discretion. Initially, we do not expect to grant unit
appreciation rights under our long-term incentive plan. In the
future, the compensation committee may make grants of unit
appreciation rights under the plan to employees, consultants and
directors containing such terms as the committee shall
determine. Unit appreciation rights will have an exercise price
that will not be less than the fair market value of the units on
the date of grant. In general, unit appreciation rights will
become exercisable over a period determined by the compensation
committee. In addition, the unit appreciation rights will become
exercisable upon a change in control of our company, unless
provided otherwise by the committee. If a grantees
employment, consulting relationship or membership on the Board
of Directors terminates for any reason, the grantees
unvested unit appreciation rights will be automatically
forfeited unless, and to the extent, the grant agreement or
compensation committee provides otherwise.
Benefits Under the LTIP for 2007. Subject to
unitholder approval of the LTIP Amendment Proposal, on
December 6, 2006, the Compensation Committee of our Board
of Directors approved restricted unit awards to certain of our
executive officers and other employees. The following table sets
forth the number of the restricted units that have been awarded
(subject to your approval of the LTIP Amendment Proposal) to the
following: (i) the Named Executive Officers; (ii) all
current executive officers as a group; (iii) all current
directors who are not executive officers as a group and
(iv) all employees, including all current officers who are
not executive officers, as a group:
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Name and Position
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Number of Restricted Units
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Michael C. Linn, Chairman of the
Board and Chief Executive Officer
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150,000
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Kolja Rockov, Executive Vice
President and Chief Financial Officer
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140,000
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Mark E. Ellis(1), Executive Vice
President and Chief Operating Officer
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Thomas A. Lopus, Senior Vice
President Operations
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15,000
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Roland P. Keddie, Senior Vice
President and Secretary
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15,000
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Lisa D. Anderson, Senior Vice
President and Chief Accounting Officer
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15,000
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Executive Group
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335,000
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Non-Executive Director Group
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Non-Executive Officer Employee
Group
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49,000
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(1) |
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Mr. Ellis will commence employment with our company on
December 18, 2006. |
THE BOARD OF DIRECTORS RECOMMENDS THAT UNITHOLDERS VOTE
FOR APPROVAL OF THE LTIP AMENDMENT PROPOSAL, AND
PROXIES EXECUTED AND RETURNED WILL BE SO VOTED UNLESS CONTRARY
INSTRUCTIONS ARE INDICATED THEREON.
10
Reasons
for Board of Directors Recommendation
Our Board of Directors believes that our future success depends,
in large part, upon our ability to maintain a competitive
position to:
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attract new employees and executives with competitive
compensation packages;
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retain our existing executives who are attractive candidates to
other companies in our industries;
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motivate and recognize our directors, officers, employees and
consultants; and
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ensure the availability of incentive awards for employees we
hire as a result of acquisitions.
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INTERESTS
OF CERTAIN PERSONS
In considering the recommendation of our board of directors to
approve the Class B Conversion and Issuance Proposal, you
should be aware that if the Class B Conversion and Issuance
Proposal is approved at our Special Meeting, the Class B
Unitholders will receive Units. The Units will be listed on The
NASDAQ Global Market and will therefore be a more liquid
security than the Class B Units. Our other unitholders will
not receive any additional securities or other consideration if
the Class B Conversion and Issuance Proposal is approved.
You should also be aware that, upon conversion of the
Class B Units to Units, Quantum Energy Partners II LP
will own 23.84% of our outstanding Units, Michael C. Linn will
own 8.67% of our outstanding Units and Lehman Brothers MLP
Partners, L.P. will own 5.2% of our outstanding Units.
DESCRIPTION
OF UNITS
Units
The Units represent limited liability company interests in us.
The holders of Units are entitled to participate in
distributions and exercise the rights or privileges available to
unitholders under our limited liability company agreement.
The Units currently receive distributions of available cash from
operating surplus in an amount equal to the quarterly
distribution, which amount was $0.43 per Unit with respect
to the third quarter of 2006. The amount of available cash, if
any, at the end of any quarter may be greater or less than the
current aggregate quarterly distribution to be distributed on
all units.
Unitholders have the right to vote with respect to the election
of our board of directors, certain amendments of our limited
liability company agreement, the merger of our company or the
sale of all or substantially all of our assets, and the
dissolution of our company.
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Dissolution
and Liquidation
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If we liquidate, we will allocate gain and loss to entitle the
holders of Units a preference over the holders of Class B
Units to the extent required to permit the unitholders to
receive their unrecovered initial Unit price, plus the initial
quarterly distribution for the quarter during which liquidation
occurs, plus any arrearages.
Holders of Units are not entitled to preemptive rights with
respect to issuances of additional securities by us.
11
We amended our limited liability company agreement in connection
with the private placement to create a new series of units
designated as Class B Units. The Class B Units,
together with our Units, represent membership interests in us.
Unlike the Units, the Class B Units are not publicly traded.
Upon approval of the Class B Conversion and Issuance
Proposal, each Class B Unit will convert automatically into
one Unit and none of the Class B Units will remain
outstanding. If unitholder approval is not received, then each
Class B Unit will remain outstanding and will continue to
receive distributions of 115% of the amount of distributions
paid on each Unit.
Each Class B Unit has the right to share in distributions
on a pro rata basis with the Units, with the amount of any
distributions on such Class B Unit equaling 115% of the
quarterly cash distribution amount payable on each Unit.
Class B Units are non-voting except that the Class B
Units shall be entitled to vote as a separate class on any
matter that adversely affects the rights or preferences of the
Class B Units in relation to other classes of interests or
as required by law. The approval of a majority of the
Class B Units shall be required to approve any matter upon
which the holders of Class B Units are entitled to vote.
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Dissolution
and Liquidation
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If we liquidate, we will allocate gain and loss to entitle the
holders of Units a preference over the holders of Class B
Units to the extent required to permit the unitholders to
receive their unrecovered initial Unit price, plus the initial
quarterly distribution for the quarter during which liquidation
occurs, plus any arrearages for the unitholders.
Holders of Class B Units, like holders of Units, are not
entitled to preemptive rights with respect to issuances of
additional securities by us.
12
EXECUTIVE
COMPENSATION
The following table sets forth information concerning the
compensation for services rendered in all capacities to Linn
Energy, LLC and its subsidiaries for the years ended
December 31, 2005 and 2004 for our President and Chief
Executive Officer and our four other most highly compensated
executive officers.
Summary
Compensation Table
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Annual Compensation
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Other Annual
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All Other
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Year
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Salary ($)
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Bonus ($)
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Compensation(1) ($)
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Compensation (2) ($)
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Michael C. Linn
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2005
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200,000
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$
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8,400
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President and Chief Executive
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2004
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18,750
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200,000
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Officer
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Kolja Rockov(3)
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2005
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159,848
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100,000
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$
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Executive Vice President and
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2004
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Chief Financial Officer
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Gerald W. Merriam(4)
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2005
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140,000
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50,000
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$
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8,400
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Executive Vice
President
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2004
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115,572
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50,000
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Engineering Operations
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Roland P. Keddie
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2005
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130,000
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40,000
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$
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7,200
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Senior Vice President
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2004
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105,000
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50,000
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Secretary
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Donald T. Robinson(5)
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2005
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70,833
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40,000
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34,021
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(6)
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$
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2,817
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Chief Accounting Officer
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2004
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(1) |
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Except as described, the value of perquisites and other personal
benefits did not exceed the lesser of either $50,000 or 10% of
the total annual salary and bonus reported for each named
executive officer. |
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(2) |
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Amounts shown reflect company matching contributions under our
401(k) Plan. |
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(3) |
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Mr. Rockov commenced employment with us in March 2005. |
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(4) |
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Effective April 7, 2006, Mr. Merriam resigned his
position with our company. |
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(5) |
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Mr. Robinson commenced employment with us in April 2005 and
resigned his position with our company in June 2006. |
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(6) |
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Amount represents a reimbursement by our company of relocation
costs and expenses. |
Employment
Agreements;
Change-of-Control
Arrangements
We have entered into an employment agreement with Michael C.
Linn, our Chairman, President and Chief Executive Officer,
effective upon the closing of our initial public offering on
January 19, 2006. Mr. Linns employment agreement
provides for an annual base salary of $1.00 for the first
12 months and $250,000 thereafter subject to annual
increase. Mr. Linns employment agreement also
provides for incentive compensation payable at the discretion of
our Board of Directors. In addition, under his employment
agreement, Mr. Linn received, upon completion of our
initial public offering, an option to purchase
111,250 units at an exercise price of $21.00 per unit
and a one-time cash bonus in the amount of $500,000.
Mr. Linn will also receive, if he remains employed by us at
such time, a grant of 625,781 units on the first
anniversary of the completion of our initial public offering.
The unit grant will be fully vested upon issuance. The unit
option award vests in equal annual installments over three years
and will vest in full upon a change of control or a termination
without cause, with good reason or upon Mr. Linns
death or disability.
The employment agreement also provides for piggyback
registration rights with respect to the units to be issued
pursuant to the unit option and unit grant following the earlier
to occur of 18 months after our initial public offering or
the date on which Quantum Energy Partners holds less than 50% of
the units it owned immediately following our initial public
offering.
13
In the event of termination by us other than for cause or
termination by Mr. Linn for good reason, his employment
agreement provides for severance payments in 24 monthly
installments at an annual base salary of $250,000 if his
employment is terminated in the first 12 months and at his
highest base salary in effect at any time during the
36 months prior to the date of termination if terminated
thereafter. If, within one year of a change of control, we
terminate his employment other than for cause or Mr. Linn
terminates his employment for good reason, he will be entitled
to receive a lump-sum payment equal to $750,000. The employment
agreement prohibits Mr. Linn from soliciting any of our
employees or customers as well as from competing with us for a
period of two years. The non-compete provision will not be
applicable if we terminate Mr. Linn within one year of a
change of control.
We entered into an employment agreement effective as of
December 18, 2006 with Mark E. Ellis, our Executive Vice
President and Chief Operating Officer. Mr. Ellis
employment agreement provides for an annual base salary of not
less than: (i) $250,000 for 2007 and (ii) $300,000 for
2008, in each case subject to annual increase, and a one-time
bonus of $250,000, payable within five business days after
January 1, 2007. Mr. Ellis is also entitled to receive
a guaranteed bonus of not less than 100% of his then current
annual base salary with respect to the fiscal year ending
December 31, 2007 and December 31, 2008. Thereafter,
Mr. Ellis will be eligible for incentive compensation
payable at the discretion of our board of directors.
Mr. Ellis also is entitled to receive: (i) an option
awarded under the Linn Energy, LLC Long Term Incentive Plan as
of the effective date to purchase 50,000 units at an
exercise price equal to the fair market value of our units on
the date of grant, which are expected to vest one-third on
January 1, 2007, one-third on January 1, 2008, and the
remaining one-third on January 1, 2009; and (ii) a
grant of 200,000 restricted units awarded under the incentive
plan as of the effective date, one-half of which are expected to
vest on January 1, 2007, one-quarter of which are expected
to vest on January 1, 2008 and one-quarter of which are
expected to vest on January 1, 2009. On the first
anniversary of the effective date, Mr. Ellis is also
entitled to receive an option award under the incentive plan to
purchase 50,000 units at an exercise price equal to the
fair market value of our units on the date of grant, which are
expected to vest one-third at the end of each twelve-month
period following the award. Not later than January 1, 2008,
Mr. Ellis is also entitled to receive a grant of 100,000
restricted units awarded under the incentive plan, which are
expected to vest one-third on January 1, 2008, one-third on
January 1, 2009, and the remaining one-third on
January 1, 2010. The options and restricted units will vest
in full upon a change of control or a termination of
Mr. Ellis employment by us without cause, termination
of employment by Mr. Ellis with good reason or upon
Mr. Ellis death or disability.
In the event of termination of Mr. Ellis employment
by us other than for cause or termination by Mr. Ellis for
good reason, the employment agreement provides for severance
payments, if prior to the first anniversary of the effective
date, in 12 monthly installments, and if on or after the
second anniversary of the effective date, in 24 monthly
installments, in an amount equal to one-twelfth (1/12th) of his
highest base salary in effect at any time during the
36 months prior to the date of termination. In the event of
termination by of Mr. Ellis employment by us other
than for cause or termination by Mr. Ellis for good reason,
on or prior to December 31, 2007, he will also be entitled
to a cash payment equal to his pro-rata guaranteed bonus.
If, within one year of a change of control, we terminate his
employment other than for cause or Mr. Ellis terminates his
employment for good reason, Mr. Ellis will be entitled to
receive a lump-sum payment equal to his highest base salary if
prior to the first anniversary of the effective date, and two
times his highest base salary if on or after the first
anniversary of the effective date.
Mr. Ellis employment agreement prohibits him from
soliciting any of our employees or customers as well as from
competing directly with us for a period of one year following
termination of employment. The non-compete provision will not be
applicable if Mr. Ellis is terminated within one year of a
change of control.
We entered into an employment agreement effective as of
September 15, 2005 with Kolja Rockov, our Executive Vice
President and Chief Financial Officer. Mr. Rockovs
employment agreement provides for an annual base salary of
$200,000 subject to annual increase, plus a guaranteed cash
bonus of not less than $100,000 for the fiscal year ending
December 31, 2005, and incentive compensation payable at
the discretion of our Board of Directors for the remainder of
the term of employment. In addition, under his employment
agreement, Mr. Rockov received, upon completion of our
initial public offering, a grant of an aggregate
343,364 units and restricted units and an option to
purchase 111,250 units at an exercise price of
$21.00 per unit. Mr. Rockov also received a one-time
cash bonus in the amount of $1.5 million.
14
The restricted unit award vests in equal installments over two
years and the unit option award vests in equal annual
installments over three years. The restricted unit and the unit
option award will vest in full upon a change of control or a
termination without cause, with good reason or upon
Mr. Rockovs death or disability.
Mr. Rockovs employment agreement also provides for
piggyback registration rights with respect to the units to be
issued pursuant to the unit option, unit grant and the
restricted unit awards following the earlier to occur of
18 months after our initial public offering or the date on
which Quantum Energy Partners holds less than 50% of the units
it owned immediately following our initial public offering.
In the event of termination of Mr. Rockov by us other than
for cause or termination by Mr. Rockov for good reason, his
employment agreement provides for severance payments in
24 monthly installments at his highest base salary in
effect at any time during the 36 months prior to the date
of termination. If, within one year of a change of control, we
terminate Mr. Rockovs employment other than for cause
or he terminates his employment for good reason, he will be
entitled to receive a lump-sum payment equal to 36 months
of his highest annual base salary during the prior
36 months. The employment agreement prohibits
Mr. Rockov from soliciting any of our employees or
customers as well as from competing with us for a period of two
years. The non-compete provision will not be applicable if we
terminate Mr. Rockov within one year of a change of control.
We entered into an employment agreement, effective as of
April 3, 2006, with Thomas A. Lopus, our Senior Vice
President Operations. Mr. Lopus
employment agreement provides for an annual base salary of
$175,000 subject to annual increase. Mr. Lopus
employment agreement also provides for a guaranteed bonus in
2006 of not less than $125,000 and thereafter, incentive
compensation payable at the discretion of our Board of
Directors. In addition, under the employment agreement
Mr. Lopus is entitled to receive:
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an option to purchase 50,000 units at an exercise price of
$19.74 per unit subject to a service based three-year vesting
schedule;
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a second option to purchase 25,000 units at an exercise
price of $19.74 per unit subject to a specified service
requirement and a performance based vesting schedule; and
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a grant of 20,000 restricted units subject to a specified
service requirement and a performance based vesting schedule.
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The service based option will vest in equal annual installments
over three years and will vest in full upon a change of control
or a termination without cause, with good reason or upon
Mr. Lopus death or disability.
The performance based unit option award and restricted unit
grant vest upon the later of the date the performance goal for
each tier is achieved, and the date of the required service
period for each tier set forth in the third column of the
following schedule:
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Tier
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Performance Goal
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Service Period
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Companys annualized
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distribution rate is at least:
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Tier A
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$
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1.92 per unit
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March 31, 2007
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Tier B
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$
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2.30 per unit
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March 31, 2008
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Tier C
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$
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2.76 per unit
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March 31, 2009
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In the event the performance goal applicable to a particular
tier is not met on or before December 31, 2009, that tier
shall be forfeited as of December 31, 2009. Upon a change
of control or a termination without cause, with good reason or
upon Mr. Lopus death or disability the performance
awards vest to the extent that the applicable performance goals
set have been met with respect to each tier on or before the
date of termination.
In the event of termination by us other than for cause or
termination by Mr. Lopus for good reason, his employment
agreement provides for severance payments, if prior to the
April 3, 2007, in 12 monthly installments and, if
after April 3, 2007, in 24 monthly installments in an
amount equal to one-twelfth (1/12th) of his highest base salary
in effect at any time during the 36 months prior to the
date of termination. In the event of termination by us other
than for cause or termination by Mr. Lopus for good reason,
on or prior to December 31, 2006 he will be entitled to a
cash payment equal to his pro-rata guaranteed bonus. If, within
one year of a change of control, we terminate his employment
other than for cause or Mr. Lopus terminates his employment
for good reason, he will be
15
entitled to receive a lump-sum payment equal to, his highest
base salary if prior to April 3, 2007, two times his
highest base salary if on or after April 3, 2007 and our
annualized distribution rate at the time of the change of
control is at least $2.30 per unit, three times his highest
base salary if on or after April 3, 2008 and before
December 31, 2009 and our annualized distribution rate at
the time of the change of control is at least $2.76 per
unit or up to three times his highest base salary if on or after
December 31, 2009 depending upon whether or not the
foregoing specified annual distribution rates were achieved by
us in the specified time periods set forth above.
Mr. Lopus employment agreement prohibits
Mr. Lopus from soliciting any of our employees or customers
as well as from competing with us for a period of two years. The
non-compete provision will not be applicable if we terminate
Mr. Lopus within one year of a change of control.
On July 7, 2006, we entered into an employment agreement
with Lisa D. Anderson, our Senior Vice President and Chief
Accounting Officer, effective July 17, 2006.
Ms. Andersons employment agreement provides for an
annual base salary of $175,000, subject to annual increase, and
a one-time bonus of $100,000, payable within thirty days of the
effective date. Ms. Anderson is also entitled to receive a
guaranteed bonus of not less than $62,500 with respect to the
fiscal year ending December 31, 2006, and not less than
$125,000 with respect to the fiscal year ending
December 31, 2007. Thereafter, she will be eligible for
incentive compensation payable at the discretion of our Board of
Directors. Ms. Anderson also received an option awarded
under the Linn Energy, LLC Long-Term Incentive Plan to purchase
50,000 units at an exercise price equal to the fair market
value of our units on the date of grant and subject to a
service-based vesting schedule. Ms. Anderson also received
a grant of 50,000 restricted units awarded under the Long-Term
Incentive Plan, subject to a service-based vesting schedule. The
option and restricted unit awards are expected to vest one-third
on January 1, 2007, one-third on January 1, 2008, and
the remaining one-third on January 1, 2009. The options and
restricted units will vest in full upon a change of control or a
termination of Ms. Andersons employment by us without
cause, termination of employment by Ms. Anderson with good
reason or upon Ms. Andersons death or disability.
In the event of termination of Ms. Andersons
employment by us other than for cause or termination by
Ms. Anderson for good reason, Ms. Andersons
employment agreement provides for severance payments, if prior
to the first anniversary of the effective date, in twelve
monthly installments, and if on or after the second anniversary
of the effective date, in twenty-four monthly installments, in
an amount equal to one-twelfth (1/12th) of her highest base
salary in effect at any time during the thirty-six months prior
to the date of termination. In the event of termination of
Ms. Andersons employment by us other than for cause
or termination by Ms. Anderson for good reason, on or prior
to December 31, 2007, she will also be entitled to a cash
payment equal to her pro-rata guaranteed bonus.
If, within one year of a change of control, we terminate her
employment other than for cause or Ms. Anderson terminates
her employment for good reason, she will be entitled to receive
a lump-sum payment equal to her highest base salary if prior to
the first anniversary of the effective date, and two times her
highest base salary if on or after the first anniversary of the
effective date.
Ms. Andersons employment agreement prohibits her from
soliciting any of our employees or customers as well as from
competing directly with us for a period of two years following
termination of employment. The non-compete provision will not be
applicable if Ms. Anderson is terminated within one year of
a change of control.
Effective April 14, 2006, we entered into a separation
agreement and general release with Gerald W. Merriam, formerly
our Executive Vice President Engineering Operations.
Under the terms of Mr. Merriams separation agreement,
Mr. Merriam received a severance payment of $217,600 less
all applicable withholdings.
Mr. Merriam has agreed to release us and our predecessors,
successors, affiliates, shareholders, unitholders, directors,
officers, employees and agents from all claims arising from the
beginning of time to the date of Mr. Merriams
separation agreement, including but not limited to claims
relating to Mr. Merriams employment relationship with
us, termination of such relationship and his capacity as a
unitholder of our company.
Additionally, Mr. Merriam has agreed to make himself
available to us from time to time for a period not to exceed one
year to provide consulting services to our company at a rate of
$100 per hour.
16
On June 5, 2006, we entered into a separation agreement and
general release with Donald T. Robinson, formerly our Chief
Accounting Officer. Under the terms of Mr. Robinsons
separation agreement, Mr. Robinson received a severance
payment of $65,000 less all applicable withholdings.
Mr. Robinson has agreed to release us and our predecessors,
successors, affiliates, shareholders, unitholders, directors,
officers, employees and agents from all claims arising from the
beginning of time to the date of Mr. Robinsons
separation agreement, including but not limited to claims
relating to Mr. Robinsons employment relationship
with us, termination of such relationship and his capacity as a
unitholder of our company.
Additionally, Mr. Robinson has agreed to make himself
available to us from time to time for a period not to exceed one
year to provide consulting services to us at a rate of
$100 per hour.
Director
Compensation
On August 3, 2006, the Compensation Committee of our Board
of Directors approved the award of 3,000 phantom units to
each of our independent directors. The phantom units were
granted under the LTIP. Under the terms of the grant agreement,
the forfeiture restrictions on the phantom units lapse on the
first anniversary of the grant date, provided that such director
continues to serve on the Board of Directors on such date, or
such director stood for re-election to the Board of Directors
but was not elected. Additionally, if a directors service
on the Board of Directors is terminated for cause at anytime
after the grant date and regardless of whether the restricted
period has terminated, then all phantom units awarded under the
grant agreement shall be forfeited. The forfeiture restrictions
on the phantom units will not lapse upon a change of control.
With respect to phantom units that vest, payment in respect of
such units shall be made in unrestricted Units, which payment
shall be deferred until the earliest of such directors
separation from service, death, disability or an unforeseen
emergency. Our compensation policy for independent directors in
2007 has not been determined.
Compensation
Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board
of directors or compensation committee of any entity that has
one or more of its executive officers serving as a member of our
Board of Directors or compensation committee.
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our
units, as of the Record Date, by:
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each person known by us to beneficially own 5% or more of our
units;
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each member of our Board of Directors;
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each of our named executive officers; and
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all directors and executive officers as a group.
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The amounts and percentage of units beneficially owned are
reported on the basis of regulations of the SEC governing the
determination of beneficial ownership of securities. Under the
rules of the SEC, a person is deemed to be a beneficial
owner of a security if that person has or shares
voting power, which includes the power to vote or to
direct the voting of such security, or investment
power, which includes the power to dispose of or to direct
the disposition of such security. A person is also deemed to be
a beneficial owner of any securities of which that person has a
right to acquire beneficial ownership within 60 days of the
Record Date. Under these rules, more than one person may be
deemed a beneficial owner of the same securities and a person
may be deemed a beneficial owner of securities as to which he
has no economic interest.
17
Except as indicated by footnote, the persons named in the table
below have sole voting and investment power with respect to all
units shown as beneficially owned by them, subject to community
property laws where applicable.
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Units
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Percentage
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to be
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of Units to be
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Beneficially
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Beneficially
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Name of Beneficial Owner(1)
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Owned(2)
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Owned(2)
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Quantum Energy Partners(3)
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10,144,585
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36.4
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%
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Michael C. Linn
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3,662,122
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13.2
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%
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Kolja Rockov(4)
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343,764
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1.2
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%
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Gerald W. Merriam(5)
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475,622
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1.7
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%
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Roland P. Keddie
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475,622
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1.7
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%
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Donald T. Robinson(6)
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1,200
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*
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Alan L. Smith(7)
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10,144,585
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36.4
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%
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George A. Alcorn(8)
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12,000
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*
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Terrence S. Jacobs(8)
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17,750
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*
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Jeffrey C. Swoveland(8)
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10,000
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*
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All executive officers and
directors as a group (10 persons)(9)
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14,736,343
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52.8
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%
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* |
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Less than 1% of class. |
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(1) |
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The address of each beneficial owner, unless otherwise noted, is
c/o Linn Energy, LLC, 650 Washington Road, 8th Floor,
Pittsburgh, PA 15228. |
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(2) |
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Does not include 5,534,687 Units and 9,185,965 Class B
Units purchased by institutional investors on October 24,
2006. |
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(3) |
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Based solely on information furnished in the Schedule 13D/
A (Amend. No. 1) filed by QEP, QEM-LP and QEM-LLC (each as
defined below) with the SEC on February 17, 2006. Quantum
Energy Partners owns its units through Quantum Energy
Partners II, LP (QEP). QEP is controlled by its
general partner, Quantum Energy Management II, LP
(QEM-LP), which is controlled by its general
partner, Quantum Energy Management II, LLC
(QEM-LLC), an affiliate of Quantum Energy Partners.
QEP, QEM-LP and
QEM-LLC can
be contacted at the following address: c/o Quantum Energy
Partners, 777 Walker Street, Suite 2530,
Houston, Texas 77002. |
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(4) |
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Includes 228,909 restricted units that vest in equal
installments over a two-year period and 400 units as
custodian under certain UGMA accounts for immediate family
members as to which Mr. Rockov disclaims beneficial
ownership. |
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(5) |
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Mr. Merriam resigned from our company in April 2006. |
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(6) |
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Mr. Robinson resigned from our company in June 2006. |
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(7) |
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Includes 10,144,585 units beneficially owned by Quantum
Energy Partners and affiliated entities as described in note
(2) above. Mr. Smith, a principal of Quantum Energy
Partners, could be deemed to beneficially own the units held by
Quantum Energy Partners II, LP. Mr. Smith disclaims
beneficial ownership in the reported securities in excess of his
indirect pecuniary interest in the securities. Mr. Smith
can be contacted at the following address: 777 Walker Street,
Suite 2530, Houston, Texas 77002. |
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(8) |
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Includes 10,000 units receivable upon the exercise of a
unit option that is exercisable within 60 days of the date
of the table set forth above. |
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(9) |
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Includes 10,144,585 units beneficially owned by Quantum
Energy Partners and its affiliated entities which could be
deemed to be beneficially owned by our director, Alan L. Smith,
a Managing Director of Quantum Energy Partners, as to which
Mr. Smith disclaims beneficial ownership in excess of his
indirect pecuniary interest. Also includes an aggregate of
30,000 units receivable upon the exercise of options that
are held by certain of our directors and that are exercisable
within 60 days of the date of the table set forth above.
Excludes 475,622 units beneficially owned by
Mr. Merriam and 1,200 Units beneficially owned by
Mr. Robinson. |
18
SOLICITATION
AND MAILING OF PROXIES
The expense of preparing, printing and mailing this Proxy
Statement and the proxies solicited hereby will be borne by us.
In addition to the use of the mail, proxies may be solicited by
our representatives in person or by telephone, electronic mail
or facsimile transmission. These representatives will not be
additionally compensated for such solicitation, but may be
reimbursed for
out-of-pocket
expenses incurred in connection therewith. If undertaken, we
expect the expenses of such solicitation by our representatives
to be nominal. We will also request brokerage firms, banks,
nominees, custodians and fiduciaries to forward proxy materials
to the beneficial owners of our Units as of the Record Date and
will provide reimbursement for the cost of forwarding the proxy
materials in accordance with customary practice.
We have retained Georgeson Inc. to aid in the solicitation of
proxies, for which we will pay approximately $8,500, plus
certain other fees and out of pocket expenses, for all of these
solicitation services. Your cooperation in promptly signing and
returning the enclosed proxy card will help to avoid additional
expense. If a unitholder wishes to give such holders proxy
to someone other than the names appearing in the proxy card, the
names appearing in the proxy card must be crossed out and the
name of another individual or individuals (not more than three)
inserted. The signed card must be presented at the Special
Meeting by the individual or individuals representing such
unitholder.
If a unitholder wishes to give such holders proxy to
someone other than the names appearing in the proxy card, the
names appearing in the proxy card must be crossed out and the
name of another individual or individuals (not more than three)
inserted. The signed card must be presented at the Special
Meeting by the individual or individuals representing such
unitholder.
As a matter of policy, proxies, ballots, and voting tabulations
that identify individual unitholders are kept private by us.
Such documents are available for examination only by the
inspectors of election and certain personnel associated with
processing proxy cards and tabulating the vote. The vote of any
unitholder is not disclosed except as necessary to meet legal
requirements.
WHERE YOU
CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and current reports and Proxy
Statements with the SEC. Our SEC filings are available to the
public via the internet at the SECs website at
www.sec.gov. You may also read and copy any document
that we file with the SEC at the SECs public reference
room at Judiciary Plaza, 450 Fifth Street, Washington, D.C.
20549. You can call the SEC at
1-800-SEC-0330
for further information on the public reference room and its
copy charges. We maintain a website at
www.linnenergy.com, where we post our SEC filings.
You may also request a copy of our filings, without charge, by
calling our Investor Relations at
(713) 223-0880
or write to Investor Relations, 600 Travis, Suite 7000,
Houston, Texas 77002.
If you would like to request documents from us, please do so at
least five business days before the date of the Special Meeting
in order to receive timely delivery of the documents before the
Special Meeting.
You should rely only on the information contained in this Proxy
Statement to vote your Units at the Special Meeting. We have not
authorized anyone to provide you with information that is
different from what is contained in this Proxy Statement.
The information contained in this document speaks only as of the
date indicated on the cover of this document unless the
information specifically indicates that another date applies.
19
OTHER
MATTERS FOR THE SPECIAL MEETING
As of the date of this Proxy Statement, our board of directors
knows of no matters to be acted upon at the Special Meeting
other than the proposals included in the accompanying notice and
described in this Proxy Statement. If any other matter requiring
a vote of unitholders arises, including a question of adjourning
the Special Meeting, the persons named as proxies in the
accompanying proxy card will have the discretion to vote thereon
according to their best judgment of what they consider to be in
the best interests of our company. The accompanying proxy card
confers discretionary authority to take action with respect to
any additional matters that may come before the Special Meeting
or any adjournment or postponement thereof.
By Order of the Board of Directors,
Roland P. Keddie
Secretary
Houston, Texas
December 18, 2006
20
ANNEX A
First
Amendment to
Linn Energy, LLC Long-Term Incentive Plan
WHEREAS, Linn Energy, LLC (the Company) maintains
the Linn Energy, LLC Long-Term Incentive Plan (the
LTIP) for the purpose of granting Awards thereunder
to Employees and Directors of the Company and its Affiliates who
perform services for the Company and its Affiliates; and
WHEREAS, the Company desires to amend the Plan to increase the
number of Restricted Units that may be awarded under the Plan.
NOW, THEREFORE, the following provisions of the Plan shall be
amended to read as follows:
(a) Limits on Units Deliverable. Subject
to adjustment as provided in Section 4(c), the maximum
number of Units that may be delivered or reserved for delivery
or underlying any Award with respect to the Plan is 3,900,000,
except that no more than 1,500,000 Units in the aggregate may be
issued under the Plan as Restricted Units. If any Award expires,
is canceled, exercised, paid or otherwise terminates without the
delivery of Units, or if the maximum number of Units delivered
is reduced for any reason other than tax withholding or payment
of the exercise price, then the Units covered by such Award, to
the extent of such expiration, cancellation, exercise, payment
or termination, shall again be Units with respect to which
Awards may be granted. Units that cease to be subject to an
Award because of the exercise of the Award, or the vesting of
Restricted Units or similar Awards, shall no longer be subject
to or available for any further grant under this Plan.
Notwithstanding the foregoing, there shall not be any limitation
on the number of Awards that may be granted under the Plan and
paid in cash.
All terms used herein that are defined in the Plan shall have
the same meanings given to such terms in the Plan, except as
otherwise expressly provided herein.
Except as amended and modified hereby, the Plan shall continue
in full force and effect and the Plan and this instrument shall
be read, taken and construed as one and the same instrument.
Executed
this ,
2007.
Linn Energy, LLC
Kolja Rockov
Executive Vice President and
Chief Financial Officer
A-1
ANNEX B
Linn
Energy, LLC
Long-Term Incentive Plan
The Linn Energy Long-Term Incentive Plan (the
Plan) is intended to promote the interests of
Linn Energy, LLC, a Delaware limited liability company (the
Company), by providing to employees,
consultants, and directors of the Company and its Affiliates
incentive compensation awards for superior performance that are
based on Units. The Plan is also contemplated to enhance the
ability of the Company and its Affiliates to attract and retain
the services of individuals who are essential for the growth and
profitability of the Company and to encourage them to devote
their best efforts to advancing the business of the Company.
As used in the Plan, the following terms shall have the meanings
set forth below:
Affiliate means, with respect to any Person,
any other Person that directly or indirectly through one or more
intermediaries controls, is controlled by or is under common
control with, the Person in question. As used herein, the term
control means the possession, direct or indirect, of
the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
Award means an Option, Restricted Unit, Unit
Grant, Phantom Unit or Unit Appreciation Right granted under the
Plan, and shall include tandem DERs granted with respect to an
Option, Phantom Unit or Unit Appreciation Right.
Award Agreement means the written agreement
by which an Award shall be evidenced.
Board means the Board of Directors of the
Company.
Change of Control means the occurrence of any
of the following events:
(i) the acquisition by any person, as such term
is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the Exchange
Act), other than the Company or an Affiliate of the
Company, of beneficial ownership (as defined in
Rule 13d-3
under the Exchange Act), directly or indirectly, of securities
of the Company representing more than 35% of the combined voting
power of our then outstanding securities entitled to vote
generally in the election of directors; provided, however, that
any acquisition of securities from QEP will be disregarded for
purposes of determining whether a Change of Control has
occurred; or
(ii) the consummation of a reorganization, merger,
consolidation or other form of business transaction or series of
business transactions, in each case, with respect to which
persons who were the members of the Company immediately prior to
such reorganization, merger or consolidation or other
transaction do not, immediately thereafter, own more than 50% of
the combined voting power entitled to vote generally in the
election of directors of the reorganized, merged or consolidated
companys then outstanding voting securities; or
(iii) the sale, lease or disposition (in one or a series of
related transactions) by the Company of all or substantially all
our assets to any Person or its Affiliates, other than the
Company or its Affiliates; or
(iv) a change in the composition of the Board, as a result
of which fewer than a majority of the directors are Incumbent
Directors. Incumbent Directors shall mean directors
who either (A) are directors of the Company as of the
effective date of the initial public offering of the
Companys equity interests, or (B) are elected, or
nominated for election, thereafter to the Board with the
affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination or
(C) are among the five original independent directors of
the Company, but Incumbent Director shall not
include an individual whose election or nomination is in
connection with (i) an actual or threatened election
contest (as such terms are used in
B-1
Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or an
actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board or (ii) a plan
or agreement to replace a majority of the then Incumbent
Directors; or
(v) the approval by the Board or the members of the Company
of a complete or substantially complete liquidation or
dissolution of the Company.
Solely with respect to any Award that is subject to
Section 409A of the Code and to the extent that the
definition of change of control under Section 409A applies
to limited liability companies, this definition is intended to
comply with the definition of change of control under
Section 409A of the Code as in effect commencing
January 1, 2005 and, to the extent that the above
definition does not so comply, such definition shall be void and
of no effect and, to the extent required to ensure that this
definition complies with the requirements of Section 409A
of the Code, the definition of such term set forth in
regulations or other regulatory guidance issued under
Section 409A of the Code by the appropriate governmental
authority is hereby incorporated by reference into and shall
form part of this Plan as fully as if set forth herein verbatim
and the Plan shall be operated in accordance with the above
definition of Change of Control as modified to the extent
necessary to ensure that the above definition complies with the
definition prescribed in such regulations or other regulatory
guidance insofar as the definition relates to any Award that is
subject to Section 409A of the Code.
Code means the Internal Revenue Code of 1986,
as amended.
Committee means the Compensation Committee of
the Board or such other committee of the Board as may be
appointed by the Board to administer the Plan.
Consultant means an individual, other than an
Employee or a Director, providing bona fide services to the
Company or any of its Affiliates as a consultant or advisor, as
applicable, provided that such individual is a natural person
and that such services are not in connection with the offer or
sale of securities in a capital-raising transaction and do not
directly or indirectly promote or maintain a market for any
securities of the Company.
DER or Distribution Equivalent
Right means a contingent right, granted in tandem with
a specific Option, Unit Appreciation Right or Phantom Unit, to
receive an amount in cash equal to the cash distributions made
by the Company with respect to a Unit during the period such
tandem Award is outstanding.
Director means a member of the Board who is
not an Employee.
Employee means any employee of the Company or
an Affiliate who perform services for the Company and its
Affiliates.
Exchange Act means the Securities Exchange
Act of 1934, as amended.
Fair Market Value means the closing sales
price of a Unit on the applicable date (or if there is no
trading in the Units on such date, on the next preceding date on
which there was trading) as reported in The Wall Street
Journal (or other reporting service approved by the
Committee). In the event Units are not publicly traded at the
time a determination of fair market value is required to be made
hereunder, the determination of fair market value shall be made
in good faith by the Committee.
LLC Agreement means the Second Amended and
Restated Limited Liability Company Agreement of Linn Energy,
LLC, as it may be subsequently amended or restated from time to
time.
Option means an option to purchase Units
granted under the Plan.
Participant means any Employee, Consultant or
Director granted an Award under the Plan.
Person means an individual or a corporation,
limited liability company, partnership, joint venture, trust,
unincorporated organization, association, government agency or
political subdivision thereof or other entity.
Phantom Unit means a phantom (notional) Unit
granted under the Plan which upon vesting entitles the
Participant to receive a Unit or an amount of cash equal to the
Fair Market Value of a Unit. Whether cash or Units are received
for Phantom Units shall be determined in the sole discretion of
the Committee and shall be set forth in the Award Agreement.
B-2
QEP means Quantum Energy Partners II,
LP, a Delaware limited partnership.
Restricted Period means the period
established by the Committee with respect to an Award during
which the Award remains subject to forfeiture or is either not
exercisable by or payable to the Participant, as the case may be.
Restricted Unit means a Unit granted under
the Plan that is subject to a Restricted Period.
Rule 16b-3
means
Rule 16b-3
promulgated by the SEC under the Exchange Act, or any successor
rule or regulation thereto as in effect from time to time.
SEC means the Securities and Exchange
Commission, or any successor thereto.
UDR or Unit Distribution Right
means a distribution made by the Company with respect to a
Restricted Unit.
Unit means a Unit of the Company.
Unit Appreciation Right (UAR) means an Award
that, upon exercise, entitles the holder to receive the excess
of the Fair Market Value of a Unit on the exercise date over the
exercise price established for such Unit Appreciation Right.
Such excess may be paid in cash
and/or in
Units as determined in the sole discretion of the Committee and
set forth in the Award Agreement.
Unit Grant means an Award of an unrestricted
Unit.
The Plan shall be administered by the Committee. A majority
of the Committee shall constitute a quorum, and the acts of the
members of the Committee who are present at any meeting thereof
at which a quorum is present, or acts unanimously approved by
the members of the Committee in writing, shall be the acts of
the Committee. Subject to the terms of the Plan and applicable
law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have
full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to
a Participant; (iii) determine the number of Units to be
covered by Awards; (iv) determine the terms and conditions
of any Award; (v) determine whether, to what extent, and
under what circumstances Awards may be settled, exercised,
canceled, or forfeited; (vi) interpret and administer the
Plan and any instrument or agreement relating to an Award made
under the Plan; (vii) establish, amend, suspend, or waive
such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and
(viii) make any other determination and take any other
action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided
in the Plan, all designations, determinations, interpretations,
and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive, and binding
upon all Persons, including the Company, any Affiliate, any
Participant, and any beneficiary of any Award.
(a) Limits on Units Deliverable. Subject
to adjustment as provided in Section 4(c), the maximum
number of Units that may be delivered or reserved for delivery
or underlying any Award with respect to the Plan is 3,900,000,
except that no more than 500,000 Units in the aggregate may be
issued under the Plan as Restricted Units. If any Award expires,
is canceled, exercised, paid or otherwise terminates without the
delivery of Units, or if the maximum number of Units delivered
is reduced for any reason other than tax withholding or payment
of the exercise price, then the Units covered by such Award, to
the extent of such expiration, cancellation, exercise, payment
or termination, shall again be Units with respect to which
Awards may be granted. Units that cease to be subject to an
Award because of the exercise of the Award, or the vesting of
Restricted Units or similar Awards, shall no longer be subject
to or available for any further grant under this Plan.
Notwithstanding the foregoing, there shall not be any limitation
on the number of Awards that may be granted under the Plan and
paid in cash.
(b) Sources of Units Deliverable Under
Awards. Any Units delivered pursuant to an Award
shall consist, in whole or in part, of Units acquired in the
open market, from any Affiliate, the Company or any other
Person, newly issued Units or any combination of the foregoing
as determined by the Committee in its sole discretion.
B-3
(c) Adjustments. In the event that the
Committee determines that any distribution (whether in the form
of cash, Units, other securities, or other property),
recapitalization, split, reverse split, reorganization, merger,
consolidation,
split-up,
spin-off, combination, repurchase, or exchange of Units or other
securities of the Company, issuance of warrants or other rights
to purchase Units or other securities of the Company, or other
similar transaction or event affects the Units such that an
adjustment is determined by the Committee to be appropriate in
order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan,
then the Committee shall, in such manner as it may deem
equitable, adjust any or all of (i) the number and type of
Units (or other securities or property) with respect to which
Awards may be granted, (ii) the number and type of Units
(or other securities or property) subject to outstanding Awards,
and (iii) the grant or exercise price with respect to any
Award or, if deemed appropriate, make provision for a cash
payment to the holder of an outstanding Award; provided, that
the number of Units subject to any Award shall always be a whole
number and, provided further, that the Committee shall not take
any action otherwise authorized under this
subparagraph (c) to the extent that (i) such
action would cause (A) the application of Section 409A
of the Code to the Award or (B) create adverse tax
consequences under Section 409A of the Code should that
Code section apply to the Award or (ii) except as permitted
in Section 7(c), materially reduce the benefit to the
Participant without the consent of the Participant.
Any Employee, Consultant or Director shall be eligible to be
designated a Participant and receive an Award under the Plan.
(a) Options. The Committee shall have the
authority to determine the Employees, Consultants and Directors
to whom Options shall be granted, the number of Units to be
covered by each Option, whether DERs are granted with respect to
such Option, the purchase price therefor and the conditions and
limitations applicable to the exercise of the Option, including
the following terms and conditions and such additional terms and
conditions, as the Committee shall determine, that are not
inconsistent with the provisions of the Plan.
(i) Exercise Price. The purchase price
per Unit purchasable under an Option shall be determined by the
Committee at the time the Option is granted, provided such
purchase price may not be less than its Fair Market Value as of
the date of grant.
(ii) Time and Method of Exercise. The
Committee shall determine the time or times at which an Option
may be exercised in whole or in part, which may include, without
limitation, accelerated vesting upon the achievement of
specified performance goals, and the method or methods by which
payment of the exercise price with respect thereto may be made
or deemed to have been made, which may include, without
limitation, cash, check acceptable to the Company, a
cashless-broker exercise through procedures approved
by the Company, with the consent of the Committee, the
withholding of Units that would otherwise be delivered to the
Participant upon the exercise of the Option, other securities or
other property, or any combination thereof, having a fair market
value (as determined by the Committee) on the exercise date
equal to the relevant exercise price.
(iii) Forfeiture. Except as otherwise
provided in the terms of the Award Agreement, upon termination
of a Participants employment with or consulting services
to the Company and its Affiliates or membership on the Board,
whichever is applicable, for any reason prior to the date an
Option becomes exercisable, all Options shall be forfeited by
the Participant. The Committee may in its discretion, waive in
whole or in part such forfeiture with respect to a
Participants Options.
(iv) DERs. To the extent provided by the
Committee, in its discretion, a grant of Options may include a
tandem DER grant, which may provide that such DERs shall be
credited to a bookkeeping account (with or without interest in
the discretion of the Committee) subject to the same vesting
restrictions as the tandem Award, or be subject to such other
provisions or restrictions as determined by the Committee in its
discretion.
(b) Restricted Units and Unit Grants. The
Committee shall have the authority to determine the Employees,
Consultants and Directors to whom Restricted Units and Unit
Grants shall be granted, the number of Restricted
B-4
Units and/or
Unit Grants to be granted to each such Participant, the
Restricted Period, the conditions under which the Restricted
Units may become vested or forfeited, and such other terms and
conditions as the Committee may establish with respect to such
Awards, including whether UDRs are granted with respect to
Restricted Units.
(i) UDRs. To the extent provided by the
Committee, in its discretion, a grant of Restricted Units may
provide that distributions made by the Company with respect to
the Restricted Units shall be subject to the same forfeiture and
other restrictions as the Restricted Unit and, if restricted,
such distributions shall be held, without interest, until the
Restricted Unit vests or is forfeited with the UDR being paid or
forfeited at the same time, as the case may be. Absent such a
restriction on the UDRs in the grant agreement, UDRs shall be
paid to the holder of the Restricted Unit without restriction.
(ii) Forfeitures. Except as otherwise
provided in the terms of the Award Agreement, upon termination
of a Participants employment with the Company and its
Affiliates or membership on the Board, whichever is applicable,
for any reason during the applicable Restricted Period, all
outstanding Restricted Units awarded the Participant shall be
automatically forfeited on such termination. The Committee may
in its discretion, waive in whole or in part such forfeiture
with respect to a Participants Restricted Units.
(iii) Lapse of Restrictions. Upon or as
soon as reasonably practical following the vesting of each
Restricted Unit, subject to the provisions of
Section 8(b), the Participant shall be entitled to
have the restrictions removed from his or her Unit certificate
so that the Participant then holds an unrestricted Unit.
(c) Phantom Units. The Committee shall
have the authority to determine the Employees, Consultants and
Directors to whom Phantom Units shall be granted, the number of
Phantom Units to be granted to each such Participant, the
Restricted Period, the time or conditions under which the
Phantom Units may become vested or forfeited, which may include,
without limitation, the accelerated vesting upon the achievement
of specified performance goals, and such other terms and
conditions as the Committee may establish with respect to such
Awards, including whether DERs are granted with respect to such
Phantom Units.
(i) DERs. To the extent provided by the
Committee, in its discretion, a grant of Phantom Units may
include a tandem DER grant, which may provide that such DERs
shall be credited to a bookkeeping account (with or without
interest in the discretion of the Committee) subject to the same
vesting restrictions as the tandem Award, or be subject to such
other provisions or restrictions as determined by the Committee
in its discretion. Notwithstanding any other provision of the
Plan to the contrary, any grant of DERs with respect to Phantom
Units shall contain terms that (i) are designed to avoid
application of Section 409A of the Code to the Award or
(ii) are designed to avoid adverse tax consequences under
Section 409A should that Code section apply.
(ii) Forfeitures. Except as otherwise
provided in the terms of the Award Agreement, upon termination
of a Participants employment with or consulting services
to the Company and its Affiliates or membership on the Board,
whichever is applicable, for any reason during the applicable
Restricted Period, all outstanding Phantom Units awarded the
Participant shall be automatically forfeited on such
termination. The Committee may, in its discretion, waive in
whole or in part such forfeiture with respect to a
Participants Phantom Units.
(iii) Lapse of Restrictions. Upon or as
soon as reasonably practical following the vesting of each
Phantom Unit, subject to the provisions of Section 8(b),
the Participant shall be entitled to receive from the Company
one Unit or cash equal to the Fair Market Value of a Unit, as
determined by the Committee in its discretion.
(d) Unit Appreciation Rights. The
Committee shall have the authority to determine the Employees,
Consultants and Directors to whom Unit Appreciation Rights shall
be granted, the number of Units to be covered by each grant and
the conditions and limitations applicable to the exercise of the
Unit Appreciation Right, including the following terms and
conditions and such additional terms and conditions, as the
Committee shall determine, that are not inconsistent with the
provisions of the Plan.
(i) Exercise Price. The exercise price
per Unit Appreciation Right shall be not less than its Fair
Market Value as of the date of grant.
B-5
(ii) Vesting/Time of Payment. The
Committee shall determine the time or times at which a Unit
Appreciation Right shall become vested and the time or times at
which a Unit Appreciation Right shall be paid in whole or in
part.
(iii) Forfeitures. Except as otherwise
provided in the terms of the Award Agreement, upon termination
of a Participants employment with or services to the
Company and its Affiliates or membership on the Board, whichever
is applicable, for any reason prior to vesting, all unvested
Unit Appreciation Rights awarded the Participant shall be
automatically forfeited on such termination. The Committee may,
in its discretion, waive in whole or in part such forfeiture
with respect to a Participants Unit Appreciation Rights,
in which case, such Unit Appreciation Rights shall be deemed
vested upon termination of employment or service and paid as
soon as administratively practical thereafter.
(iv) Unit Appreciation Right DERs. To the
extent provided by the Committee, in its discretion, a grant of
Unit Appreciation Rights may include a tandem DER grant, which
may provide that such DERs shall be credited to a bookkeeping
account (with or without interest in the discretion of the
Committee) subject to the same vesting restrictions as the
tandem Unit Appreciation Rights Award, or be subject to such
other provisions or restrictions as determined by the Committee
in its discretion.
(e) General.
(i) Awards May Be Granted Separately or
Together. Awards may, in the discretion of the
Committee, be granted either alone or in addition to, in tandem
with, or in substitution for any other Award granted under the
Plan or any award granted under any other plan of the Company or
any Affiliate. No Award shall be issued in tandem with another
Award if the tandem Awards would result in adverse tax
consequences under Section 409A of the Code. Awards granted
in addition to or in tandem with other Awards or awards granted
under any other plan of the Company or any Affiliate may be
granted either at the same time as or at a different time from
the grant of such other Awards or awards.
(ii) Limits on Transfer of Awards.
(A) Except as provided in Section 6(e)(ii)(C)
below, each Award shall be exercisable or payable only to
the Participant during the Participants lifetime, or to
the person to whom the Participants rights shall pass by
will or the laws of descent and distribution.
(B) Except as provided in Section 6(e)(ii)(C)
below, no Award and no right under any such Award may be
assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by a Participant and any such
purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against
the Company, the Company or any Affiliate.
(C) To the extent specifically provided by the Committee
with respect to an Award, an Award may be transferred by a
Participant without consideration to immediate family members or
related family trusts, limited partnerships or similar entities
or on such terms and conditions as the Committee may from time
to time establish.
(iii) Term of Awards. The term of each
Award shall be for such period as may be determined by the
Committee, but shall not exceed 10 years.
(iv) Unit Certificates. All certificates
for Units or other securities of the Company delivered under the
Plan pursuant to any Award or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the Plan or the rules,
regulations, and other requirements of the SEC, any stock
exchange upon which such Units or other securities are then
listed, and any applicable federal or state laws, and the
Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(v) Consideration for Grants. Awards may
be granted for such consideration, including services, as the
Committee determines.
(vi) Delivery of Units or Other Securities and Payment
by Participant of Consideration. Notwithstanding
anything in the Plan or any grant agreement to the contrary,
delivery of Units pursuant to the exercise
B-6
or vesting of an Award may be deferred for any period during
which, in the good faith determination of the Committee, the
Company is not reasonably able to obtain Units to deliver
pursuant to such Award without violating the rules or
regulations of any applicable law or securities exchange. No
Units or other securities shall be delivered pursuant to any
Award until payment in full of any amount required to be paid
pursuant to the Plan or the applicable Award grant agreement
(including, without limitation, any exercise price or tax
withholding) is received by the Company.
(vii) Change of Control. Unless
specifically provided otherwise in the Award Agreement, upon a
Change of Control or such time prior thereto as established by
the Committee, all outstanding Awards shall automatically vest
or become exercisable in full, as the case may be. In this
regard, all Restricted Periods shall terminate and all
performance criteria, if any, shall be deemed to have been
achieved at the maximum level. To the extent an Option or UAR is
not exercised, or a Phantom Unit or Restricted Unit does not
vest, upon the Change of Control, the Committee may, in its
discretion, cancel such Award or provide for an assumption of
such Award or a replacement grant on substantially the same
terms; provided, however, upon any cancellation of an Option or
UAR that has a positive spread or a Phantom Unit or
Restricted Unit, the holder shall be paid an amount in cash
and/or other
property, as determined by the Committee, equal to such
spread if an Option or UAR or equal to the Fair
Market Value of a Unit, if a Phantom Unit or Restricted Unit.
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7.
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Amendment
and Termination.
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Except to the extent prohibited by applicable law:
(a) Amendments to the Plan. Except as
required by the rules of the principal securities exchange on
which the Units are traded and subject to Section 7(b)
below, the Board or the Committee may amend, alter, suspend,
discontinue, or terminate the Plan in any manner, including
increasing the number of Units available for Awards under the
Plan, without the consent of any partner, Participant, other
holder or beneficiary of an Award, or other Person.
(b) Amendments to Awards Subject to
Section 7(a). The Committee may waive any
conditions or rights under, amend any terms of, or alter any
Award theretofore granted, provided no change, other than
pursuant to Section 7(c), in any Award shall
materially reduce the benefit to Participant without the consent
of such Participant and no change may be made which would cause
any Participant to be subject to excise tax under
Section 409A of the Code.
(c) Adjustment of Awards Upon the Occurrence of Certain
Unusual or Nonrecurring Events. The Committee is
hereby authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards in
recognition of unusual or nonrecurring events (including,
without limitation, the events described in Section 4(c)
of the Plan) affecting the Company or the financial
statements of the Company, or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential
benefits intended to be made available to Participants under the
Plan or such Award.
(a) No Rights to Award. No Person shall
have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Participants.
The terms and conditions of Awards need not be the same with
respect to each recipient.
(b) Tax Withholding. The Company or any
Affiliate is authorized to withhold from any Award, from any
payment due or transfer made under any Award or from any
compensation or other amount owing to a Participant the amount
(in cash, Units, other securities, Units that would otherwise be
issued pursuant to such Award or other property) of any
applicable taxes payable in respect of the grant of an Award,
its exercise, the lapse of restrictions thereon, or any payment
or transfer under an Award or under the Plan and to take such
other action as may be necessary in the opinion of the Company
to satisfy its withholding obligations for the payment of such
taxes.
(c) No Right to Employment or
Services. The grant of an Award shall not be
construed as giving a Participant the right to be retained in
the employ of the Company or any Affiliate, to continue as a
consultant, or to remain on
B-7
the Board, as applicable. Further, the Company or an Affiliate
may at any time dismiss a Participant from employment or
terminate a consulting relationship, free from any liability or
any claim under the Plan, unless otherwise expressly provided in
the Plan, any Award agreement or other agreement.
(d) Governing Law. The validity,
construction, and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware without regard
to its conflict of laws principles.
(e) Section 409A of the
Code. Notwithstanding anything in this Plan to
the contrary, any Award granted under the Plan shall contain
terms that (i) are designed to avoid application of
Section 409A of the Code to the Award or (ii) are
designed to avoid adverse tax consequences under
Section 409A of the Code should that section apply to the
Award. If any Plan provision or Award under the Plan would
result in the imposition of an applicable tax under
Section 409A of the Code and related regulations and
pronouncements, that Plan provision or Award will be reformed to
avoid imposition of the applicable tax and no action taken to
comply with Section 409A of the Code shall be deemed to
adversely affect the Participants rights to an Award or to
require the Participants consent.
(f) Severability. If any provision of the
Plan or any award is or becomes or is deemed to be invalid,
illegal, or unenforceable in any jurisdiction or as to any
Person or Award, or would disqualify the Plan or any award under
any law deemed applicable by the Compensation Committee, such
provision shall be construed or deemed amended to conform to the
applicable laws, or if it cannot be construed or deemed amended
without, in the determination of the Compensation Committee,
materially altering the intent of the Plan or the Award, such
provision shall be stricken as to such jurisdiction, person or
award and the remainder of the Plan and any such Award shall
remain in full force and effect.
(g) Other Laws. The Committee may refuse
to issue or transfer any Units or other consideration under an
Award if, in its sole discretion, it determines that the
issuance or transfer of such Units or such other consideration
might violate any applicable law or regulation, the rules of the
principal securities exchange on which the Units are then
traded, or entitle the Company or an Affiliate to recover the
same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder
or beneficiary in connection with the exercise of such Award
shall be promptly refunded to the relevant Participant, holder
or beneficiary.
(h) No Trust or
Fund Created. Neither the Plan nor any award
shall create or be construed to create a trust or separate fund
of any kind or a fiduciary relationship between the Company or
any participating Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to
receive payments from the Company or any participating Affiliate
pursuant to an Award, such right shall be no greater than the
right of any general unsecured creditor of the Company or any
participating Affiliate.
(i) No Fractional Units. No fractional
Units shall be issued or delivered pursuant to the Plan or any
Award, and the Committee shall determine whether cash, other
securities, or other property shall be paid or transferred in
lieu of any fractional Units or whether such fractional Units or
any rights thereto shall be canceled, terminated, or otherwise
eliminated.
(j) Headings. Headings are given to the
Sections and subsections of the Plan solely as a convenience to
facilitate reference. Such headings shall not be deemed in any
way material or relevant to the construction or interpretation
of the Plan or any provision thereof.
(k) Facility Payment. Any amounts payable
hereunder to any person under legal disability or who, in the
judgment of the Committee, is unable to properly manage his
financial affairs, may be paid to the legal representative of
such person, or may be applied for the benefit of such person in
any manner which the Committee may select, and the Company shall
be relieved of any further liability for payment of such amounts.
(l) Participation by Affiliates. In
making Awards to Consultants and Employees employed by an
Affiliate, the Committee shall be acting on behalf of the
Affiliate, and to the extent the Company has an obligation to
reimburse the Affiliate for compensation paid to Consultants and
Employees for services rendered for the benefit of the Company,
such payments or reimbursement payments may be made by the
Company directly to the Affiliate, and, if made to the Company,
shall be received by the Company as agent for the Affiliate.
B-8
(m) Gender and Number. Words in the
masculine gender shall include the feminine gender, the plural
shall include the singular and the singular shall include the
plural.
(n) No Guarantee of Tax
Consequences. None of the Board, the Company, nor
the Committee makes any commitment or guarantee that any
federal, state or local tax treatment will apply or be available
to any person participating or eligible to participate hereunder.
The Plan shall be effective on the date of its approval by the
Board and shall continue until the date terminated by the Board.
However, unless otherwise expressly provided in the Plan or in
an applicable Award Agreement, any Award granted prior to such
termination, and the authority of the Board or the Committee to
amend, alter, adjust, suspend, discontinue, or terminate any
such Award or to waive any conditions or rights under such
Award, shall extend beyond such termination date.
B-9
Proxy Linn Energy, LLC
PROXY FOR SPECIAL MEETING OF UNITHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael C. Linn and Kolja Rockov, and each of them, with or without the other, proxies, with full power of substitution, to
vote all units that the undersigned is entitled to vote at the 2007
Special Meeting of Unitholders of Linn Energy, LLC (the
Company), to be held on Thursday,
January 18, 2007, at 10:00 a.m., Central Standard Time, at
600 Travis, Suite 7000, Houston, Texas 77002, and all adjournments and
postponements thereof as follows:
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To change the terms of Class B Units to provide that each Class B Unit will automatically convert into one Unit and to issue additional Units upon such conversion. |
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2. |
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To amend the LTIP to provide that not more than 1,500,000 of the total number of Units authorized to be issued under the LTIP may be issued as Restricted Units. |
This Proxy is revocable and will be voted as you specify on the reverse side hereof. If no specification is made with regard to the proposals, this
Proxy will be voted FOR the proposals. Receipt of the Notice of the Special Meeting and the related Proxy Statement is hereby acknowledged.
FOR CERTAIN IMPORTANT VOTING RESTRICTIONS AND LIMITATIONS, PLEASE READ THE REVERSE SIDE OF THIS PROXY CARD BEFORE YOU VOTE YOUR UNITS ON THE PROPOSALS.
(continued on reverse side)
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Linn Energy, LLC
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(BAR CODE) |
MR A SAMPLE
DESIGNATION (IF ANY)
ADD 1
ADD 2 000004
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ADD 4 Least
Address Line
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(BAR CODE)
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
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000000000.000 ext
C 1234567890 JNT
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(BAR CODE) |
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o |
Mark this box with an X if you have made
changes to your name or address details above. |
Special Meeting Proxy Card
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A
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Proposals |
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The Board of Directors
unanimously recommends that unitholders vote FOR approval of Proposal One and Proposal Two. |
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For
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Against
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Abstain |
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1.
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Class B Conversion and Issuance Proposal (as defined in Proxy Statement).
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o
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o
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o |
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2.
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LTIP Amendment Proposal (as defined in Proxy Statement).
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o
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o
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o |
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VOTING RESTRICTIONS AND LIMITATIONS:
PROPOSAL ONE: IF YOU ARE THE HOLDER OF UNITS PURCHASED SIMULTANEOUSLY
WITH CLASS B UNITS ON OCTOBER 24, 2006, THEN YOUR EXECUTION OF THIS PROXY
CARD WILL INDICATE YOUR VOTE OF UNITS OTHER THAN THOSE PURCHASED
SIMULTANEOUSLY WITH THE CLASS B UNITS, HELD BY YOU ON THE RECORD DATE
WITH RESPECT TO PROPOSAL ONE. |
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PROPOSAL TWO: ALL UNITS HELD BY YOU AS OF THE RECORD DATE ARE ENTITLED TO
VOTE ON PROPOSAL TWO, EXCEPT THAT THE CLASS B UNITS ARE NON-VOTING, AND
THEREFORE, CANNOT BE VOTED ON EITHER PROPOSAL ONE OR PROPOSAL TWO. |
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B |
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Authorized Signatures Sign Here This section must be completed for your instructions to be executed. |
Please sign exactly as your name or names appear on this Proxy. When units are held jointly, each holder should sign.
When signing as executor, administrator, attorney, trustee or guardian, please give full title as such.
If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full
title as such. If signer is a partnership, please sign in partnership name by authorized person. |
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Date (mm/dd/yyyy) |
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Signature 1 Please keep signature within the box
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Signature 2 Please keep signature within the box |
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/ / |
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0113611 |
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3UPX
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COY |
001CD40001 00NEYB